First American’s Potential Home Sales Model for March 2023 shows that potential existing-home sales decreased to a 5.35 million seasonally adjusted annualized rate (SAAR), representing a 2.5 percent month-over-month decrease.
This figure represents a 53.5 percent increase from the market-potential low point reached in February 1993.
First America says the market potential for existing-home sales decreased 10.7 percent compared with a year ago, a loss of 641,700 (SAAR) sales.
Moreover, the potential existing-home sales rate is 1,439,400 (SAAR), or 21.2 percent below the pre-recession peak of market potential, which occurred in April 2006.
“While mortgage rates have retreated from recent highs, they remain elevated compared with one year ago, and house prices, while down from the peak, also remain elevated – all while housing supply remains historically and unseasonably low,” says Mark Fleming, chief economist at First American. “These headwinds are not new to the housing market, but there is a new concern on the horizon – tightening credit standards.
“At the onset of the pandemic, tighter credit was the biggest contributor to the loss of potential home sales, as lenders reduced credit to account for a higher likelihood of forbearance and delinquency,” he notes.
Now, Fleming says, the main contributor is the recent banking crisis.
“There are fears that the recent bank failures will prompt lenders to be much more conservative with their lending,” he explains. “At a high level, when lending standards are tight, fewer people can qualify for a mortgage to buy a home. When homeowners are less likely to qualify for a mortgage, they are more likely to stay in their current home or, for potential first-time home buyers, not buy one at all.”
Still, affordability and a lack of inventory remain the primary challenges to housing market potential, Fleming notes.